Pallavi Shetty

UNIVERSITY OF MUMBAI
A STUDY on
FINANCIAL STATEMENT ANALYSIS
Of
ZUARI CEMENTS LTD
Submitted in partial fulfilment of the requirement for the award of degree

of
BACHELOR OF ACCOUNTING & FINANCE
Submitted by
MS. PALLAVI RAJESH SHETTY

Roll No: 49
Under the guidance of

MR. ADIL ILYAS SHAIKH
REENA MEHTA COLLEGE OF COMMERCE AND

MANAGEMENT STUDIES
2018- 2019
1
CERTIFICATE
This is to certify that MS. PALLAVI RAJESH SHETTY roll no:-49 student of
REENA MEHTA COLLEGE OF COMMERCE AND MANAGEMENT
STUDIES has completed her project work of “FINANCIAL STATEMENT
ANALYSIS” under the guidance of MR. ADIL ILYAS SHAIKH of the academic
year 2018-2019.
COURSE COORDINATOR PRINCIPAL
(MRS. SUPRIYA SINGH) (DR.SATINDER KAUR
GUJRAL)
PROJECT GUIDE
(MR. ADIL ILYAS SHAIKH)
EXTERNAL PROFESSOR
2
DECLARATION
I, MS. PALLAVI RAJESH SHETTY, student of REENA MEHTA COLLEGE OF

COMMERCE AND MANAGEMENT STUDIES studying in TYBAF (SEM VITH)
hereby declare that i have completed the project on FINANCIAL STATEMENT
ANALYSIS in the academic year 2018-19.
The information submitted is true and original to the best of my knowledge.
PALLAVI RAJESH SHETTY
NAME OF THE STUDENT: PALLAVI RAJESH SHETTY
ROLL NO: 49
REENA MEHTA COLLEGE OF COMMERCE AND MANAGEMENT

STUDIES
3
ACKNOWLEDGEMENT
To list who all have helped me is difficult because they are so numerous and the depth
is so enormous.
I would like to acknowledge the following as being idealistic channels and fresh
dimensions in the completion of this project.
I take this opportunity to thank the University of Mumbai for giving me chance to
do this project.
I would like to thank my principal, DR. SATINDER KAUR GUJRAL for

providing the necessary facilities required for completion of this project.
I take this opportunity to thank our Coordinator MRS. SUPRIYA SINGH for her
moral support and guidance.
I would also like to express my sincere gratitude towards my project guide MR.
ADIL ILYAS SHAIKH whose guidance and care made the project successful.
I would like to thank my College Library, for having provided various reference
books and magazines related to my project.
Lastly, I would like to thank each and every person who directly or indirectly helped
me in the completion of the project especially my Parents and Peers who supported
me throughout my project.
4
INDEX PAGE
INDEX
Page No
ACKNOWLEDGMENT 4
LIST OF TABLES 6
LIST OF CHARTS 7
CHAPTER I: Introduction 8-20
CHAPTER II: Profile of the organization 21-31
CHAPTER III: Research Design and Methodology 32-34
CHAPTER IV: Data Presentation, Analysis and 35-76

Interpretation
CHAPTER V: Recommendations 77-78
CONCLUSION: 79
BIBLIOGRAPHY: 80
5
LIST OF TABLES
LIST OF TABLES
Table No. Title of the Table Pag
e
No.
Table No. 1.1 Cement statistics 26
Table No. 1.2 Regional distribution of cement in 2006 31
Table No. 1.3 Region wise share of consumption 31
Table No. 1.4 Profit before tax 41
Table No. 1.5 Profit after tax 42
Table No. 1.6 Turnover 43
Table No. 1.7 Current ratio 49
Table No. 1.8 Quick ratio 50
Table No. 1.9 Debt equity ratio 52
Table No. 1.10 Proprietary ratio 53
Table No. 1.11 Debt to total assets ratio 54
Table No. 1.12 Interest coverage ratio 55
Table No. 1.13 Stock turnover ratio 57
Table No. 1.14 Inventory holding period 57
Table No. 1.15 Debtor turnover ratio 58
Table No. 1.16 Debtor collection period 59
Table No. 1.17 Working capital turnover ratio 60
Table No. 1.18 Total assets turnover ratio 61
Table No. 1.19 Fixed assets turnover ratio 62
Table No. 1.20 Cash ratio 63
Table No. 1.21 Net profit ratio 64
Table No. 1.22 Gross profit ratio 65
Table No. 1.23 Return on capital employed 67
Table No. 1.24 Return on equity share holder fund 69
Table No. 1.25 Return on total assets 70
Table No. 1.26 Reserve to total capital ratio 71
Table No. 1.27 Debt ratio 72
Table No. 1.28 Capitalization ratio 73
Table No. 1.29 Internal growth ratio 75
Table No. 1.30 Sustainable growth ratio 76
6
LIST OF & CHARTS
LIST OF CHARTS
Chart No. Title of the Chart Page No.
Chart No. 2.1 Indian presence of Zuari cement 22
Chart No. 2.2 Market network of Zuari cement 24
Chart No. 2.3 India’s cements scenario 27
Chart No. 2.4 GDP at cost of factor 28
Chart No. 2.5 Growth of the sector 29
Chart No. 2.6 Expected growth 30
Chart No. 2.7 Trend of sales and net income of ZCL 38
Chart No. 2.8 Trend of profit before tax of ZCL 39
Chart No. 2.9 Trend of profit after tax of ZCL 40
Chart No. 2.10 Profit before tax 41
Chart No. 2.11 Profit after tax 42
Chart No. 2.12 Turnover 43
7
INTRODUCTION
Financial analysis is the process of identifying the financial strengths and

weaknesses of the firm by property establishing relationships between the item of
the balance sheet and the profit and loss account. There are many users of a
company’s financial statement like Trade creditors, lender, Investor and
management. They analyse the financial statement according to their need.
The first task of the financial analyst is to select the relevant information to the
decision under consideration from the total information contained in financial
statement. The second step is to arrange the information in a way to highlight
significant relationship. The final step is to interpretation and drawing of
inferences and conclusions.
In brief, financial analysis is the process of selection, relation and evaluation.
The financial statement provides a summarised view of financial position and

operation of a firm. Therefore, much can be learnt about a firm from a careful
study of its financial statements. The analysis of financial statements is an
important aid to financial analysis. The analysis of financial statements is a
process of evaluating the relationship between component pats of financial
statements to obtain a better understanding of the firm’s position and performance.
The traditional financial statements comprising the balance sheet and profit and
loss account is that they do not give all the information related to the financial
operation of a firm. Nevertheless, they provide some extremely useful information
to the extent that the balance sheet mirrors the financial position on a particulars
date in terms of the structure of assets, liabilities and owner’s equity, and so on
profit and loss account show the result of operations during a certain period of
time in terms of the revenue obtained and the cost incurred during the year.
Financial statements are the main and often the only source of information to the
lenders and the outside investors regarding a business’s financial performance and
condition. In addition to reading through the financial statements, they use certain
ratios calculated from the figures in the financial
Statement to evaluate the profit performance and financial position of the
business. These key ratios are very important to managers as well, to say the least.
The ratios are part of the language of business. It would be embarrassing to a
manager to display his or her ignorance of any of these financial specifications for
a business.
8
FINANCIAL STATEMENT ANALYSIS
A Financial statements paint a picture of the transactions that flow through a business.
Each transaction or exchange - for example, the sale of a product or the use of a
rented a building block - contributes to the whole picture. Let's approach the financial
statements by following a flow of cash-based transactions. In the illustration below,
we have numbered four major steps:
http://www.investopedia.com/university/financialstatements/default.asp
9
Financial statement is an organised collection of data. Its purpose is to convey an
understanding of various financial aspects of business firm. It may show a
position at a moment as in the case of activities over a given period of time in the
of an income statements.
The firm’s financial statement includes.
 Balance sheet
 Income statement
 Statement of cash flow
 Statement of retain earning
Balance sheet:
The balance sheet summarizes assets & liabilities owned by a firm – value of
assets and mix of financing debt & equity to finance these assets up to a point of
time. It some time, called “Statement of financial position” or “A statement of
financial position of an enterprise as on a particular date.
In theory the balance sheet of a private limited company or a public limited

company should be able to tell us all about the company’s financial structure, and
liquidity, the extent to which its assets and liabilities are held in cash or in a near
cash form (for example, bank accounts and deposits).
It should also tell us about the assets held by the company, the proportion of
current assets and the extent to which they may be used to meet current
obligations. An element of caution should be noted in analyzing balance sheet
information. The balance sheet is an historical document. It may have looked
entirely different six months or a year ago, or even one week ago. There is not
always consistency between the information included in one company’s balance
sheet with that.
10
Balance Sheet Terminology
 Fixed Assets – Assets held for more than one year. Typically Include:
 Machinery and equipment

 Buildings
 Land
 Other Assets – Assets that are not current assets or fixed assets
 Patents
 Copyrights
 Goodwill
 Current assets typically include:
 Cash
 Accounts Receivable
(Payments due from customers who buy on credit)
 Inventory
(Raw materials, work in process, and finished goods held for
eventual sale)
 Other expenses
(Prepaid expenses are those items paid for in advance)
 Debt (Liabilities)
 Money that has been borrowed and must be repaid at some

predetermined date
 Debt Capital
 financing provided by a creditor

 Current or short-term debt and long-term debt
 Current or short-term must be repaid within the next 12 months
 Current Liabilities:
 Accounts payable
 Credit extended by suppliers to a firm when it purchases

inventories
11
 Accrued expenses
 Short term liabilities incurred in the firm’s operations but not

yet paid for
 Short-term notes
 Borrowings from a bank or lending institution due and payable

within 12 months
 Long-Term Debt
 Loans from banks or other institutions for longer than 12 months
 Equity
 Includes the shareholder’s investment
 Preferred stock
 Common stock
 Treasury Stock
 stock that was once outstanding and has been re-purchased by the
company
 Retained Earnings
 cumulative total of all the net income over the life of the firm, less
common stock dividends that have been paid out over the years
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INCOME STATEMENT
Income Statement provides information regarding revenues and expenses of the

firm and resulting profit or loss during a particular period. This statement is
extremely useful to the end uses of business operations. While the balance
represents the financial status of an enterprises at a particular point of time, the
income statement summaries the results of operations for the given accounting
period.
Income Statement Terminology
 Revenue (Sales)
 Money derived from selling the company’s product or service
 Cost of Goods Sold (COGS)
 The cost of producing or acquiring the goods or services to be sold
 Operating Expenses
 Expenses related to marketing and distributing the product or service

and administering the business
 Financing Costs
 The interest paid to creditors and the dividends paid to preferred

stockholders
 Tax Expenses
 Amount of taxes owed, based upon taxable income
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STATEMENT OF CASH FLOW
The statement of cash flows may be the most intuitive of all statements. We
have already shown that, in basic terms, a company raises capital in order to buy
assets that generate a profit. The statement of cash flows "follows the cash" according
to these three core activities:
(1) Cash is raised from the capital suppliers - cash flow from financing,
(2) Cash is used to buy assets - cash flow from investing and
(3) Cash is used to create a profit - cash flow from operations.
However, for better or worse, the technical classifications of some cash flows are
not intuitive. Below we recast the "natural" order of cash flows into their technical
classifications:
14
REASONS FOR ANALYSIS
• INVESTMENT DECISIONS
• CREDIT DECISIONS
• PERFORMANCE
• VALUATION (INVESTMENT)
• LEGAL LIABILITY AMOUNT (CREDIT & PERF.)
• GOING CONCERN DECISIONS (CREDIT & PERF.)
• UNREASONABLE RETURNS (PERFORMANCE)
Tools of Financial Analysis:
15
A financial analysis can adopt the following tools for analysis of the financial
statements. These are also found as methods of financial analysis.
 Comparative Financial Statements

 Common size Financial Statements
 Trend Percentages
 Fund Flow Analysis
 Ratio Analysis
 Comparative Financial Statements :
Comparative Financial Statements refer to statements of financial

position of business. Which are prepared in such a way so as to provide a time
perspective to various elements embodied in such statement, these statements
mainly include two types of analytical statements, Viz. “Comparative Balance
Sheet, Income Statements”.
Comparative statements mainly show the following information for analytical

purpose.
o Actual data in absolute money values as given in the financial statements for
the under consideration.
o Increases and decreases in various items in money values.
o Increases or decreases in various items of percentages.

Comparative financial statements facilitate easy comparison by presenting
relevant figures for two or more period of each firm side by side.
16
 Common size Financial Statements :
The main limitation of comparative financial statements is that they failed

to show the changes that have taken place from year to year in relation to the
total assets, total liabilities and capital or total net sales. This information is
eliminated by common size analysis. Common size financial statements are
those statements in which items reported in the financial statements are
converted into percentages taking some common base. In the common size
income statements the net sales is assumed to be 100% and other items are
expressed as percentages of sale.
Similarly in the common size balance sheet, the total assets or total
liabilities are assumed to be 100% and other items are expressed as a
percentage of this total.
“Common size” statements are also called component percentages or

100% statement. Because each statement is reduced to the total of 100 and
each individual item is expressed as a percentage of this total.
 Trend percentages :
Comparative the past data over period with a base year is called trend
analysis. Under this method, percentage relationship that each statement item
bears to the same items in the base year is calculated. Any year –the earliest
year involved in comparison, or the latest year or any intervening year – may
be taken as the base year. The trend percentages are calculated only for some
important items, which can be logically connected with each other. The
concerned item in the base year is taken to be equal to as 100 and then based
on this trend percentages for the corresponding items in other year are
calculated.
This method is horizontal type analysis of financial statements. The trend

ratio is shown in comparative financial statements. Trend analysis is useful
tool for the management since it reduces the large amount of absolute data into
a simple and easily readable form.
17
 Funds Flow Analysis :
Another significant technique of financial analysis is fund flow statement

designed to highlight changes in the financial position of business concerned
between two points of time, which generally confirmed the beginning and
ending of the dates of the financial statements, for whatever period of
examination is relevant.
The significant funds flow statements, referred to as the statement of

changes in the financial position or statement of process and uses of funds
drawing on the information contained in the basic financial statements show
the sources of funds and application of funds during the period. Funds flow
analysis provides an structure of assets liabilities and owner’s equity.
The funds flow statement is a method by which we study the net funds
flow between two points in time. These positions confirm the beginning and
ending of the dates of financial statements, for whatever period of
examination.
 Ratio Analysis:
Ratio analysis is a powerful tool and widely used to financial analysis,

which is process of identifying the financial strength and weakness of the firm
by properly establishing relationships between the items of balance sheet and
profit and loss account. It can be used to compare the risk and return
relationships of firm of different size.
The term ratio refers to the numerical or quantitative relationship between

two items/variables. This relationship can be expressed as percentages,
fraction and proportion of numbers. These alternative method of expressing
items which are related to each other are, for purpose of financial analysis,
referred to as ratio analysis.
Nature and significance of ratio analysis:
Ratio analysis is a technique of analysis and interpretation of financial

statements. It is the process of establishing and interpreting various ratios for
helping in making certain decisions. However, ratio analysis is not an end in itself.
It is only a means of better understanding if financial strengths and weakness of a
18
firm. Calculation of more ratios does not serve any purpose, unless several
appropriate ratios are analyzed and interpreted.
There are a number of ratios which can be calculated from the information given
in the financial statements, but the analysis has to select same keeping in mind the
objective of analysis.
Need For Ratio Analysis:
The need for ratio analysis arises due to following facts:
Business facts shown in financial statements do not carry any importance

individuality. Their importance lies in the facts that they are inter related. Hence
there is need for establishing relationship between various but related items.
Ratio analysis as a tool for the interpretation of financial statements is

significant because ratio help the analysts to have a deep into the data given in
statements figures in their absolute forms shown in financial statements are
neither significant nor comparable. So, ratio provides power to speak.
The objectives of study:
1. To know the financial position of the ZCL.
2. To find out true and fair view of the business.
3. To find out various assets mix and the capability of the business to meet its
long-term & short-term liabilities.
4. To study about working environment, planning & strategies, business policy,

various methods & technologies for better output & optimum utilization of
resources.
5. To understand the management of human assets, finance, marketing &

production for achieving the desired goals.
6. To have in depth study regarding Analysis of the financial statement of

ZUARI CEMENT LIMITED.
19
PARTIES INTERESTED IN RATIO ANALYSIS:
Ratio analysis serves the purpose of various parties interested in financial

statements. Primarily the object of ratio analysis and interpreting the financial
statements is to get adequate information useful for the performance of various
function like planning, coordinating, controlling, communication and forecasting
etc., the interested parties are:
1. Share holder/investors:
Investor in the company will like to assess the financial position of the
concern where he is going to invest. His first would be security of his
investment and then a return in the form of dividend or interest. So, investors
concentrate on the firm’s financial structure to the extent in influences the
firm’s earning ability and risk.
2. Trade creditors:
They are interested in firm’s ability to meet their claims over a very short
period of time. So their analysis is confined to evaluation of firm’s liquidity
position.
3. The long-term creditors:
They are concerned with the firm’s long-term future solvency and survival.
They analyze the firm’s profitability over a period of time, its ability to
generate cash, to be able to pay interest and repay the principle and
relationship between various sources of funds.
4. Employees:
20
The employees are interested in financial position of the concern
especially profitability. Their wages and amount of fringe benefits are
related to the volume of profits earned by the concern. The employees make
use of information available in financial statements.
5. Government:
Government is interested to know the overall strength of industry. Various

financial statements published by industrial units are used to calculate ratios
for determining short-term, long-term and overall financial position of the
concern. Government may base its future policies on the basis of industrial
information available from various units.
6. Management:
Management of the firm require these statements for its own evaluation
and decision making. Moreover, it is responsible for the overall
performances of the firm maintaining its solvency so as to able to meet
short-term and long-term obligations to the creditors and at the same time
ensuring an adequate rate of return, consistent with safety of funds to its
owner. Financial analysis may not provide exact answer to these questions
but it will indicate what can be expresses future.
COMPANY PROFILE
Zuari Cement Limited earlier known as Sri Vishnu Cement Ltd, is an ISO
9002 company incorporated in 1984 with a mission to provide comfortable
houses at affordable price. It is a public limited company with a paid-share
capital of Rs.23.23 crores. It is one of the italcementi group company, governed
by the board of directors headed by the chairman Mr. SAROJ KUMAR
PODDAR.
Zuari cement is now fully owned by the italcementi group, the 4th largest
cement producer in the world and the biggest in the Mediterranean region. With
net sales of five billion Euros in 2005 and a capacity of 70 million tones,
Italicementi has a strong presence in over 19 countries. Now in India, with is
inherent strengths, Italcementi is all set to give the building industry, cement
that’s truly international.
21
Italicementi believes in customer satisfaction through continuous quality
improvement. This belief reflects in the group’s Quality Management System
that complies with ISO 9001: 2000 standards. This system covers all the
processes. Across all the group companies, to ensure that the end product
delivered to customers is nothing short of world class.
FUTURE PLAN OF ZUARI CEMENT LIMITED
The company plans to upgrade its clinker production from 2700 tpd to
3400 tpd.
Indian Presence
22
Italcementi invested USD120m since 2001 to acquire 2 plants with 3,2 mt capacity and a 7%a)
Italcementi plants in South
January 2001:
acquisition of 50% of Zuari Cement (Yerraguntla)
Capacity 1.950 kt Sitapuram
Net Sales 2005: USD82,6m
January 2002:
acquisition (through Zuari Cement)
of Sri Vishnu Cement (Sitapuram)
Capacity 1.250 kt
Net Sales 2005: USD39,5m
a) on total market
b) on CMA market
Chart no. 2.1
SOURCE: ITALCEMENTI ppt.
23
VISION OF ZUARI CEMENT
Main aim of zuari cement to further develop its presence in the country…
 It has taken time to fully assimilate the complexities of operating in the

country (challenging cement market, strong price pressure, changing fiscal
environment)
 The high expertise of local human resources allows today to maintain only one
expatriate as General Manager in the organization, and various plans are
underway to capitalize Group wide on Indian resources
 Several important industrial investments are underway:

- 40 MW steam coal power plant
- second clinker line in Yerraguntla
- grinding centre in Chennai
 The Group is continuously seeking opportunities for further growth in the

Country through acquisitions
24
MARKET NETWORK OF ZUARI CEMENT LIMITED
Chart no. 2.2
Source: www.Zuaricement.com
INDIAN CEMENT INDUSTRY CURRENT SCENARIO
25
The Indian cement industry is the second largest producer of quality
cement, which meets global standards. The cement industry comprises 130 large
cement plants and more than 300 mini cement plants.The industry's capacity at
the end of the year reached 188.97 million tonnes which was 166.73 million
tonnes at the end of the year 2006-07. Cement production during April to March
2007-08 was 168.31 million tonnes as compared to 155.66 million tonnes during
the same period for the year 2006-07.Despatches were 167.67 million tonnes
during April to March 2007-08 whereas 155.26 during the same period. During
April-March 2007-08, cement export was 3.65 million tonnes as compared to
5.89 during the same period.
Technological Advancements
Modernization and technology up-gradation is a continuous process for any

growing industry and is equally true for the cement industry. At present, the
quality of cement and building materials produced in India meets international
standards and benchmarks and can compete in international markets. The
productivity parameters are now nearing the theoretical bests and alternate
means. Substantial technological improvements have been brought about and
today, the industry can legitimately be proud of its state-of-the-art technology and
processes incorporated in most of its cement plants. This technology up gradation
is resulting in increased capacity, reduction in cost of production of cement.
Future Outlook
Considering an expected production and consumption growth of 9 to 10 per

cent, the demand-supply position of the cement industry is expected to improve from
2008-09 onwards, resulting in an expected price stabilization. The cement industry is
26
poised to add 111 million tones of annual capacity by the end of 2009-10 (FY 10),
riding on the back of an estimated 141 outstanding cement projects.
Major Players
The major players in the cement sector are :
 Ultratech Cement
 Century Cements
 Madras Cements
 ACC
 Gujarat Ambuja Cement Limited
 Grasim Industries
 India Cements Limited
 Jaiprakash Associates and
 JK Cements.
 Holcim
 Lafarge
 Heidelberg Cemex
 Italcementi
Cement Statistics
(million tonnes)
2006-07 2007-2008
(Apr-Mar)
(a) Production 155.66 168.31
Despatches
(b) 155.26 167.67
(Including Export)
(c) Export 3.65 5.89
(d) Cap. Uti.(%) 96 94
27
Table no.1.1
Source: Cement Manufacturers’ Association
Policy Initiatives
FDI Policy: the cement sector has been gradually liberalized. 100 per cent FDI is
now permitted in the cement industry.
http://www.indiainbusiness.nic.in/industry-infrastructure/industrial-sectors/Cement.htm
INDIA’ CEMENT SCENARIO
India is the second largest national cement market worldwide, driven by an emerging
economy and a buoyant population …
Population: 1.080 m
Pop. CAGR '99-'04: 1,5%
GDP per head: 610 US $
GDPa) CAGR ’99 - ’04: 5,7 %
GFIb) CAGR ’99 - ’04: 6,9 %
Cement sector ‘04:
Companies: 55
Plantsc): 127
Production Capacityc) (mt): 146
Cement Consumption:
million tons:
Kg/inhab: 119,4c)
110
a) Gross Domestic Product
b) Gross Fixed Investment
c) CMA plants with production capacity > 200 kt, 2005 est. 131 mt
Chart no. 2.3
Source: macroeconomic data, EIU January ’05 cement data, Cement Manufacturers Ass.
28
With a construction sector showing solid growth, overcome in recent years only by
the growth of Services...
 Construction sector accounts today for 5% of Indian GDP
 Strong growth in recent years driven by non-residential (incentives to FDI)
 Increasing weight of residential (easier access to financial credit, strong

development of major cities)
GDP at cost of factors by origin (index 1993-94=100)

220
Agricoltura
Agricolture
Costruzioni
Construction
190
Industria
Industry
Servizi
Services
GDP
PIL
160
130
100
1993-94 1996-97 1999-00 2002-03
Chart no. 2.4
Source: Ministry of Statistics
29
...and is expected to further grow due to high development rates and infrastructure programs...
Legenda
Infrastructures development supported by private/public partnerships: Stato avanzamento lavori al 30 novembre 2005
National Highway Development Plana) Golden quadrilater*:
National Marine Development Programb) NS & EW corridor:

Lavori completati
Lavori in corso
Airports development c) Progetti da assegnare
Relaunch of railways d) * Completato al 90%.

Fonte: Governo indiano
Creation of 52 thousands km of new highways and modernisation of secondary roads

Modernisation of 180 Indian ports
New airports (Hyderbad, Bangalore) and modernisation of existing (New Delhi, Bombay)
New 9 thousand km railway corridor
Chart no. 2.5
30
... with a positive impact on cement demand growth in the
medium and long term
India cement demand, mt/year
Long term
expected
growthCAGR
5,5%
Chart no. 2.6
SOURCE: ITALCEMENTI GROUP
CEMENT INDUSTRY IN ANDHRA PRADESH:
Andhra Pradesh, a south Indian state has a huge reserve of limestone and these
are being exploited by major plants and mini plants. Limestone the prime raw material
for cement industry is available inexhaustible quantities in Andhra Pradesh. Raw
materials required for cement manufacturing are coal, bauxite; gypsum and fly ash are
available in Andhra Pradesh. One fourth of the cement grade reserves of the country
are from Andhra Pradesh.
Coming to the production of cement, Madhya Pradesh is the largest cement producing
state in India next stands Andhra Pradesh, which is 18% of total country production.
31
REGION WISE CAPACITY, PRODUCTION AND CONSUMPTION:
Regional distribution in 2006
Capacity Production
Share of Share of
Million Tonne Million Tonne
Total Total
North 29.59 18.8 30.17 21.3
East 22.85 14.5 19.54 13.8
South 50.76 32.3 44.88 31.7
West 28.94 18.4 24.93 17.6
Central 25.0 15.9 22.28 15.7
Source: Industry report

Table no.1.2
In terms of regional concentration, the Southern region accounts for 32 per cent of
installed capacity, followed by Western region. MP is traditionally considered a
part of the Western region although as much as 65 per cent of cement output from
this state serves the Northern and Eastern regions.
Region wise share of consumption (in %)
Region/Zone 2005 2006

South 30 26
East 17 17
North 19 20
Central 16 17
West 18 20
Total 100 200
Source: KR Choksey report
Table no.1.3
http://www.indiabiznews.com/biznews/categoryNewsDesc.jsp?catId=11648Cement Industry – 1
32
RESEARCH METHODOLOGY
Research In Common Parlance Refers To Search For Knowledge. Data had been
collected by primary and secondary methods. Research Methodology is a way to
systematically solve the research problem. It may be understood as a science of
studying how research is done scientifically. The study of research methodology
gives the student the necessary training in gathering material and arranging them.
According to Hudson Maxim, “All progress is born of inquiry. Doubt is often better
than overconfidence, for it leads to inquiry, and inquiry leads to invention”.
Research is an academic activity and as such the term should be used in technical
sense. Research is, thus an original contribution to the existing stock of knowledge
making for its advancement.
DATA COLLECTION
The task of data collection begins after a research problem has been defined and
research design/ plan chalked out. While deciding about the method of data collection
to be used for the study, the researcher should keep in mind two types of data.
 Secondary data
My study is based on secondary data.
Collection of secondary data
These are those data which have been already collected by someone else and
which have already been passed through the statistical process. When the researcher
utilizes secondary data, then he has to look into various sources from where they can
obtain them. Secondary data may either be published data or unpublished data.
Published data are available in: -
a) Various publications of the central, state and local govt.

b) Books magazines and newspapers
c) Reports and publications of various associations connected with Business and
industry, banks, stock exchanges.
d) Reports prepared by research scholars, universities, economist etc, in different
fields.
33
Unpublished data are available from: -
Dairies, letters, unpublished biographies and autobiographies and also may be

available with scholars and research workers, trade associations, labour bureaus and
other public/ private individuals and organizations.
 Here Secondary data was collected through: -
 Annual reports and

 Website of ZCL
 Secondary data was collected through annual report 2002 to 2006

Consider.
SWOT ANALYSIS:-
STRENGTH:-
Largest manufacturer of Portland cement in southern region.
Large availability of resources like lime stone, power etc.
Technology enhancement
WEAKNESS:-
 Marginal profits.
 Continues Stability in price.
 Increasing trend in price of major raw material like power and machinery.
34
OPPORTUNITIES:-
 Introduction of new market of both export & domestic.
 Establish new plant in other region.
 Continues focus in cost reduction.
 Focus on process establishment ‘system’ by using 6 sigma methodologies.
THREATS:-
 Limited market.
 Huge competition.
 No subsidies from government.
35
DATA PRESENTATION, ANALYSIS AND INTERPRETATION
Comparative Financial Statements Analysis
Zuari cement had a very little profit in 2002 due to not proper utilization of
fixed cost.
It faced 3 year continuously losses in which in 2003 it had a very huge loss
due to increase in expenditure against decrease in sales.
In 2003 it increased its reserve to Rs. 1558.2 lacs, when ZCL had takeover the
Sri Vishnu Cement.
From 2004 it started optimum utilisation of its fixed cost and resultant got less
loss in 2004 & 2005 as compare to 2003.
From 2004 it enhanced its marketing strategies and marketing network, by

which its sales increased 10% in 2004, 25% in 2005 and 47% in 2006.
In 2003 reserve was increased but this reserve had not been used in the
following year 2003, 04, 05 and 2006 in the fixed assets.
In 2003 ZCL had 50% less sundry debtor as compare to 2002 which increased
bad debt for the company. But it again increased 50% in 2004 as compare to
2003 it resultant decreased in bad debt. The debtor decreased 35% in 2006as
compare to 2005.
In 2005 manufacturing expenses increased 30.32% while sales increased only

24.53% but loss reduced due to decrease in shot-term and long-term expenses.
In 2006 ZCL maintained its finished goods stock that is -72%, which is the
main reason of maximizing its profit.
See annexure no.3.1
36
COMMON SIZE FINANCIAL STATEMENTS
 Annexure no.3.2 shows the percentage figures that bring out clearly the
relative significance of each group of items in the aggregative position of the
firm for the following year that are as follows.
 In the 2003 the ZCL had loss. This declining can mainly be traced to the
increase of 96.74% in the manufacturing expenses reflecting diminishing in
efficiency of manufacturing operations. The increase in financial overheads
(Interest) by .19% during the 2003 can be traced to the repayment of a part of
long-term loans.
 In the 2003 the common size balance sheet show that current assets as a
percentages of total assets have decreased by 17 percent over previous year.
This decrease was shared by debtors 12% and inventory 5%; the share of cash
& bank balance and loan comparatively remained unchanged at 11%. Fixed
assets also decrease as a percentage of total assets by 12% over the previous
year. This decrease was shares by gross block 11%.
 The proportion of current liabilities (mainly due to creditors) was also lower at
16.69% in the 2003 compared to 30.67% in the previous year. These facts
signal overall increase in the liquidity position of the firm. Further the share of
long term debt has also declined and owner’s equity has gone up from 50.27%
in the previous year to 31.46% in the 2003.
 In the 2004 the ZCL had improved its loss that is -5.97%in 2004 as compared
to -10.59% in the 2003. This development can mainly be traced to the decrease
manufacturing expenses 91.90%in 2004 as compare to 96.74% in the 2003
reflecting improvement in efficiency of manufacturing operations. The
decrease in financial overheads (Interest) by 1.59% during the 2004 can be
traced to the repayment of a part of long-term loans.
 In the 2004 the common size balance sheet show that current assets as a
percentages of total assets have increase by 3% over previous year. This
increase was shared by debtors 3%; the share of cash & bank balance and loan
comparatively slightly changed. Fixed assets also decrease as a percentage of
total assets by 7% over the previous year. This decrease was shares by gross
block 14%.
 The proportion of current liabilities (mainly due to creditors) was also lower at
15.60% in the 2004 compared to 16.69% in the previous year. These facts
signal overall increase in the liquidity position of the firm. Further the share of
37
long term debt has also raise and owner’s equity has gone down from 44.58%
in the 2004 as compare to 50.27% in the 2003.
See annexure no. 3.2

 In the 2006 the EAT of ZCL improved that was 5.38%in 2006 as compared to
-2.71% in the 2005. This development can mainly be traced to the decrease
manufacturing expenses 90.42%in 2006 as compare to 96.28% in the 2005
reflecting improvement in efficiency of manufacturing operations.
 In the 2006 the common size balance sheet show that current assets increase as
a percentages of total assets by 19.18% over previous year. This increase was
shared by decrease in debtors by 6.36%; the share of cash & bank balance and
loan comparatively increased by 24.89% as compare to previous year and
some slightly changed in inventory. Fixed assets also decrease as a percentage
of total assets by 4.61% over the previous year. This decrease was shares by
gross block 3.96%.
 In 2006 an investment was made of Rs.102 lacs because unsecured load was
25% more than the previous year. Further the share of loan funds has also
raise and owner’s equity has gone down from 44.91% in the 2006 as compare
to 46.93% in the 2005.
38
TREND PERCENTAGES
Trend analysis is a form of comparative analysis, but instead of examining the entire
balance sheet and income statement for two years, this form of analysis involves
examination of selected financial statement information over longer period of
time(usually at least 5 year and much as 10-20 years).
Trend of sales and net income of zuari cement limited for the
year2002-03-04-05-06
250
200
SALES (%)
150 NET INCOME (%)
100
50
0
2002 2003 2004 2005 2006
Chart no. 2.7
We can see that Zuari’Net income and sales slightly decreased in the year of 2003 but
it increased steadily over the 5-year period. The 2006 net income is almost two times
as much as the 2002 amount. This is kind of performance that management and
stockholder seek.
39
Trend of Profit & loss before tax of Zuari cement limited for the year
2002-03-04-05-06
4000
3000
2000
1000
Profit & loss Before
0
Tax(%)
-1000
-2000
-3000
-4000
2002 2003 2004 2005 2006
Chart no. 2.8
We can see that Zuari’ Loss Before Tax was in very worst situation in the year 2003
but it continuously improved and in the 2006 profit was 30 times as much as the 2002
amounts. Now we can say how fast zuari convert its self to loss making to profit
making company by reducing the operating cost and optimum utilization of fixed
cost.
40
Trend of manufacturing & other expenses against sales of Zuari
Cement limited for the year of 2002-03-04-05-06
250
200
150 Sales(%)
Manufacturing & other

100 exp.(%)
50
0
2002 2003 2004 2005 2006
Chart no. 2.9
The following chart depict that Zuari cement limited has not control its manufacturing
expenses. We can see that expenses are increasing more than its sales during the year.
41
GRAPHICAL ANALYSIS
Profit/loss before tax of Zuari cement limited
The following chart depict that zuari cement had very small profit before tax
in the year of 2002 and It faced continuous losses over next three year. In the year
2006 it made 30 times profit as much as the 2002 profit amount.
Year 2002 2003 2004 2005 2006

Profit/loss before tax(in lacs) 34.65 -1172.81 -356.62 -449.93 1375.39
Table no.1.4
1500
1000
500
0 Profit/loss before
tax(In Lacs)
-500
-1000
-1500
2002 2003 2004 2005 2006
Chart no. 2.10
42
Profit/loss after tax
The following chart depict that zuari cement had very small profit after tax in the year
of 2002 and It faced continuous losses over next three year. In the year 2006 it made
30 times profit as much as the 2002 profit amount.
Year\value 2002 2003 2004 2005 2006

Profit/loss after 22.54 - -795.69 -449.93 1317.39
tax 1292.15
Table no.1.5
1500
1000
500
0 Profit/loss after tax
-500
-1000
-1500
2002 2003 2004 2005 2006
Chart no. 2.11
43
Turnover of ZCL
We can see that turnover of zuari cement are steadily increasing every year from 2003
to 2006 it reduced in 2002 as the 2.23%. it is twice in the year 2006 as compare to
2002 amounts.
Year\Valu 2002 2003 2004 2005 2006

e
Turnover 12481.1 12202.8 13351.5 16583.4 24469.8
4 3 4 3 9
Table no.1.6
25000
20000
15000
Turnover
10000
5000
0
2002 2003 2004 2005 2006
Chart no. 2.12
44
RATIO ANALYSIS
In order to assess how your business is doing, you'll need more than single numbers
extracted from the financial statements. Each number has to be viewed in the context
of the whole picture.
For example, your income statement may show a net profit of $100,000.
But is this good? If this profit is earned on sales of $500,000, it may be
very good; but if sales of $2,000,000 are required to produce the net
profit of $100,000, the picture changes drastically. A $2,000,000 sales
figure may seem impressive, but not if it takes $2,000,000 in assets to
produce those sales.
The true meaning of figures from the financial statements emerges only when they are
compared to other figures. Such comparisons are the essence of why business and
financial ratios have been developed.
Various ratios can be established from key figures on the financial statements. These
ratios are very simple to calculate — sometimes they are simply expressed in the
format "x:y," and other times they are simply one number divided by another, with the
answer expressed as a percentage. However, these simple ratios can be a powerful
tool because they allow you to immediately grasp the relationship expressed.
When you routinely calculate and record a group of ratios at the end of every
accounting period, you can assess the performance of your business over time, and
compare your business to others in the same industry or to others of a similar size. By
doing so, you won't be alone — banks routinely use business ratios to evaluate a
business that's applying for a loan, and some creditors use them to determine whether
to extend credit to you.
When you compare changes in your business's ratios from period to period, you can
pinpoint improvements in performance or developing problem areas. By comparing
your ratios to those in other businesses, you can see possibilities for improvement in
key areas. A number of sources, including many trade or business associations and
organizations, provide data for comparison purposes; they are also available from
45
commercial services. Your accountant may be a good source of information on how
your business compares to similar ones in your particular locale.
There are dozens and dozens of financial ratios that you can look at, but many will
have little or no meaning for your business. In the following sections we'll concentrate
on those that are most commonly considered to have the most value for making small
business decisions. The ratios fall into four categories:
 liquidity ratios
 efficiency ratios
 profitability ratios
 solvency ratios
ADVANTAGES OF RATIO ANALYSIS:-
Financial statement like profit and Loss account and balance sheet are prepared at the
end of the year do not always conveys to the reader the real profitability and financial
health of the business. They contain various facts and figures and it is for the reader to
conclude, whether these facts indicate a good or bad managerial performance. Ratio
analysis is the most important tool of analysis these financial statements. The figures
then speak of liquidity, solvency by a profitability etc. of the business enterprises.
Some important object and advantages derived by a firm by the use of accounting
ratios are:-
 Helpful in analysis of financial statement
 Simplification of accounting data
 Helpful in Comparative Study
 Helpful in locating the weak spots of the business
 Helpful in forecasting
 Estimation of ideal standards
 Fixation of ideal Standards
46
 Effective Control
 Study of financial soundness
LIMITATIONS OF RATIO ANALYSIS:-
Ratio analysis is a very important tool of financial analysis. But despite it’s being
indispensable, the ratio analysis suffers from a number of limitations. These
limitations should be kept in mind while making use of the ratio analysis: -
 False accounting data gives false ratios
 Comparison not possible if different firms adopt different Accounting policies
 Ratio analysis becomes less effective due to price level changes
 Ratio may be misleading in the absence of absolute data
 Limited use of a single Ratio
 Window dressing
 Lack of proper standards
 Ratios alone are not adequate for proper conclusion
47
CLASSIFICATION OF RATIOS:-
According ratios or financial ratio has been classified in various ways according to
different purposes in view. However, we shall discuss the classification according to
annual financial statement and according to objectives.
 Classification of ratio on the basis of financial statement:- Ratio is

calculated on The basis of information given in the financial statement, which is
as follows:
 Balance sheets Ratios or position statement ratios:- These are the

ratios which explain the numerical relationship between two figures in the
balance sheet, e.g. the Ratio of current assets to current liabilities or the ratio
between capital and total Assets, This is also called financial ratio. The most
common amongst the balance Sheet ratios are:
 Current Ratio
 Liquid ratio or Acid Test Ratio
 Proprietary Ratio
 Capital gearing Ratio
 Fixed Assets to Current Assets Ratio.
 Income statement Ratio or profit and loss Account Ratios:

-These explain the numerical relationship between two items of group
of items of the profit and loss A/c. The items should refer to the same
statement. The more common ratios under this head are:
 Operating Ratio
 Gross profit Ratio
 Net profit Ratio
48
 Expenses Ratio
 Stock Turnover Ratio
 Composite Ratio: - These ratios are based on the figures of

positions.
Statement as well as income statement e.g.
Fixed assets
Return on capital employed ratio, etc.
 Classification of ratios on the basis of objective-

Ratio can be classified into four groups on the basis of
objective:-
 Liquidity ratios
 Solvency ratios
 Activity ratios
 Profitability ratio
 Investment ratio
 LIQUIDITY RATIO:-
Liquidity refers to the ability of a firm to meet its short-term financial obligations
when and as they fall due. Thus a liquidity ratio measures the firm’s ability to
fulfil short-item commitment out of its liquid assets.
49
 CURRENT RATIO OR WORKING CAPITAL
RATIO:-
This ratio explains the relationship between current Assets and current
liabilities of a business. “Current assets” include those assets, which can be
converted into cash within a year’s time, and Current liability includes those
liabilities, which are repayable in a year’s time. The formula for calculating
the ratio is:-
Current Assets
Current Ratio =
Current Liabilities
Year 2002 2003 2004 2005 2006

Ratio 0.92 1.68 1.67 1.24 1.14
Current Assets 3819.93 2674.59 3215.45 3673.57 5571.92
Current
liabilities 4157.82 1595.22 1923.25 2954.19 4904.18
Table no.1.7
Source: compiled from the annual report of zuari cement limited.
INTERPRETATION
In 2002 ZCL had .92 paisa to pay Rs 1 which is very worst situation from the
creditor point of view. However, a ratio of less than 1 : 1 would certainly
undesirable in any industry as at least some safety margin is required to
protect the interest of creditors and to provide cushion to the firm in adverse
circumstances.
In 2003 and 04 ZCL had 68 percent more capacity to pay its short term
liabilities that even with a drop-out of 68 percent in the value of current assets,
ZCL can meet its obligation. Company must maintain at least this percent of
liquidity every year.
50
In 2005 and 06 company’s current ratio fell down that is 1.24: 1 and 1.14: 1
that is sufficient to pay its short term liabilities but from the investor point of
view the margin of safety is very less in the both year though company must
increase its liquidity position for paying its short term obligation.
These low numeric values of ratio do not indicate a good sign from investor’s
especially for sundry creditors. Company has to concentrate on company’s
liquidity problem.
 QUICK RATIO OR ACID-TEST RATIO:-

Quick ratio indicates whether the firm is in a position to pay its current
liabilities within a month or immediately. ‘Liquid assets’ means those assets,
which will yield cash very shortly. All current assets except stock and prepaid
expenses are included in liquid assets. Stock is excluded from liquid assets
because it has to be sold before it can be converted into cash. Prepaid expenses
are to be excluded from the list of liquid assets because they are not expected
to be converted into cash.
Liquid assets thus include cash debtors, bill receivable and short-term securities. As
such the Quick ratio is calculated by dividing liquid (Quick current assets) by current
liabilities: -
Liquid Assets
Quick Ratio =
Current Liabilities
Year 2002 2003 2004 2005 2006

Ratio 0.61 1.06 1.20 0.92 0.90
Liquid Assets 2530.53 1689.25 2303.8 2723.12 4429.43
Current
Liabilities 4157.82 1595.22 1923.25 2954.19 4904.18
Table no.1.8
INTERPRETATION
51
In 2003 and 04 ZCL had ability to meet their cash demand but in 2002, 05 and
2006 the numeric value of ratio is less than their ideal value which shows that
company was suffering from cash problem. This data of ratio is not good for
those creditors who give short-term loan to company.
Generally, an acid test or quick ratio of 1:1 is considered satisfactory as ZCL

can easily meet all current claims.
 LEVERAGE RATIO OR SOLVANCY RATIO:-
Any ratio used to calculate the financial leverage of a company to get an idea
of the company's methods of financing or to measure its ability to meet
financial obligations. There are several different ratios, but the main factors
looked at include debt, equity, assets and interest expenses.
Companies with high fixed costs, after reaching the breakeven point, see a
greater increase in operating revenue when output is increased compared to
companies with high variable costs. The reason for this is that the costs have
already been incurred, so every sale after the breakeven transfers to the
operating income. On the other hand, a high variable cost company sees little
increase in operating income with additional output, because costs continue to
be imputed into the outputs. The degree of operating leverage is the ratio used
to calculate this mix and its effects on operating income.
There are 5 types of leverage ratio:-
52
 DEBT-EQUITY RATIO:-
This ratio expresses the relationship between external liabilities and

shareholder’s funds. It indicates the proportion of funds, which are provided
by outside creditors in comparison to shareholders funds. This ratio is
calculated to ascertain the soundness of the long-term financial policies of the
firm.
a) External Equities – These include all the long-term and short-term debts such
as, Debenture, Mortgage Loan, Bank Loan, Public Deposits and all the
Current Liabilities.
b) Internal Equities- These includes Equity share capital, Preference Share

Capital, Reserves and credit balance of Profit & Loss A/c.
Total Debt
Debt-Equity Ratio =
Equity& Net worth
Year 2002 2003 2004 2005 2006

Ratio 3.15 1.32 1.59 1.69 1.83
Total Debt 7526.12 5362.78 6465.92 6857.95 7421.88
Net worth 2386.92 4058.63 4058.64 4058.64 4058.64
Table no.1.9
INTERPRETATION
53
In Zuari Cement Limited., the value of debt-Equity ratio is more than 1. On
the other hand, return to company is not high so that debt become beneficial
for company. It is a burden on company. In 2002 company shows very high
ratio but a high debt equity ratio has serious implications from the firms’ point
of you.
The high ratio would lead inflexibility in the operations of the firm, as
creditors would be able to borrow funds only under restrictive conditions; a
firm faces difficulty in raising funds in future.
In 2003 ZCL had 1.32:1 ratio between debt and equity which depict that
Company financed its debt in very less proportion to equity.
 PROPRIETORY RATIO:-
This is the ratio, which shows the relationship of internal equity with the total
assets. This ratio indicates the proportion of total funds provided by a firm
from internal sources it is calculated as under:-
Equity Internal Equity

(Shareholder’s Funds)
Proprietory Ratio = or
Equity + Debts Total Equity or Total Assets
Year 2002 2003 2004 2005 2006

Ratio 0.24 0.43 0.39 0.37 0.35
Equity 2386.92 4058.63 4058.64 4058.64 4058.64
Equity+Debt 9913.04 9421.41 10524.56 10916.59 11480.52
Table no.1.10
INTERPRETATION
54
In Zuari cement limited, proprietary ratio is less than 1 or 50%. This low value
of ratio indicates the unsound financial position of company. It is not good for
long term prospect. Company has to take certain steps to equity portion of this
ratio.
 DEBT-TOTAL ASSET RATIO:-
Total debt comprises of long-term debt & current liabilities &Total Asset
comprises of permanent capital & current assets.
While calculating total assets all the intangible assets appearing on the assets
side of the balance sheet should be deducted such as preliminary expenses
Underwriting Commission, Debt balance of P&L A/c etc. This ratio indicates
the proportion of total funds acquired by a firm by outside sources.
Total Debt
Debt-asset ratio =
Total Asset
Year 2002 2003 2004 2005 2006

Ratio 0.99 0.66 0.71 0.79 0.82
Total Debt 7526.12 5362.78 6465.92 6857.95 7421.88
Total Assets 7586.23 8074.16 9104.32 8647.39 9036.50
55
Table no.1.11
INTERPRETATION
It is appreciable ratio for Zuari cement Ltd. that it had less than 1 in all the five
year which shows that ZCL is financially very strong, because this ratio should
be less than 1 or 50%. This shows that company has strong financial position.
If company has more total assets then it is good for their long-term financing.
 INTEREST COVERAGE RATIO
The interest coverage ratio is a measurement of the number of times a

company could make its interest payments with its earnings before interest and
taxes; the lower the ratio, the higher the company’s debt burden.
Earnings before interest & tax

Interest coverage ratio =
Total interest
Year 2002 2003 2004 2005 2006

Ratio 1.04 -0.46 0.46 0.18 3.35
EBIT 834.06 -368.1 309.59 96.5 1960.57
T.Interest 799.41 804.71 666.21 546.43 585.18
Table no.1.12
INTERPRETATION
56
In 2004 and 05, interest coverage ratio of Zuari Cement Ltd. was .46 and .18
which is very low below standard for investor’s point of view. In the 2003
Company has negative interest coverage ratio which shows that company is
not able to pay its interest obligation. It also shows that company has weak
short-term financial health.
In the year 2002, interest coverage ratio of ZCL was 1.04 which also low
below Standard for investor’s point of view. But in the year 2006, the ratio
was 3.35:1 that is good for both company and investor, because every investor
seek to greater return from a company.
 ACTIVITY RATIO OR TURN-OVER RATIO:-
These ratios measure how well the facilities at the disposal of the being
utilized. These ratios are known as turnover ratio as they indicate the rapidity
with which the resources available to the concern are being used to product
sales. In other, words these ratio measure the efficiency and rapidity of the
resources of the company, like stock, fixed assets, working capital debtors etc.
these ratio are generally calculated on the basis of sales or cost of sales some
of the important activity ratios are discussed below: -
 STOCK TURNOVER RATIO :-
This ratio indicates the relationship between the cost of goods sold during
the year and average stock kept during that year.
Cost of Goods Sold

Stock Turnover Ratio =
Average Stock
Cost of goods sold = (Opening Stock +Purchase +Direct Exp. - Closing Stock)
Or
= Sales – Gross Profit
Average stock can be calculated as follows: -
57
Opening Stock + Closing Stock
Average Stock =
2
Year 2002 2003 2004 2005 2006

Ratio 3.19 5.17 6.41 8.51 10.54
COGS 10506.95 11767.67 12154.72 15850.06 22060.09
A.Inv. 3291.68 2274.74 1896.99 1862.1 2092.94
Table no.1.13
12 Months
Inventory holding period =
Inventory turn over ratio
200 200 200 200

Year 2 3 4 5 2006
Holding period(month) 3.76 2.32 1.87 1.41 1.14
Months 12 12 12 12 12
10.5
Inv.turnover ratio 3.19 5.17 6.41 8.51 4
Table no.1.14
INTERPRETATION
Zuari Cement limited had appreciably increased their stock turnover ratio from 2002
to 2006. It was approx. three times more than the 2002. It proves that their sales
increase during this period. Stocks are converted into sells quickly even the profit
margin increases.
58
We can see that the inventory holding period also continuously decreased every year.
It was 3.76 in the year 2002, reached 1.14 in 2006 then we can assume that its sales
increased every year.
 DEBTOR’S TURNOVER RATIO :-

This ratio indicates the relationship between credit sales and average debtors
during the year:-
Net Credit Sales

Debtors Turnover Ratio =
Average Debtors + Average B/R
Bills receivable are added in Debtors for the purpose of calculation of this
ratio. Average debtors are calculated by adding the debtors and B/R at the
beginning of a period as well as at the end of the period and by dividing the
total by 2. While calculating this ratio provision for bad and doubtful debts is
not deducted from total debtors so that it may not give a false impression that
debtors are collected quickly.
If the amount of credit sales is not given in the question, the ratio may be
calculated by taking the figure of total sales.
Year 2002 2003 2004 2005 2006

Ratio 4.62 5.79 9.46 8.49 12.62
Net credit sales 12304.34 12030.07 13231.66 16476.79 24280.23
Opening debtors 1824.42 1681.42 790.8 1215.41 1452.34
Closing debtors 1681.42 790.8 1215.41 1452.34 942.97
A.debtor+A.B/R 2665.13 2076.82 1398.51 1941.58 1923.83
Table no.1.15
59
12 Months
Debtor Collection Period =
Debtor Turnover Ratio
Year 2002 2003 2004 2005 2006

Months 2.60 2.07 1.27 1.41 0.95
12 (months) 12 12 12 12 12
Debtor turnover ratio 4.62 5.79 9.46 8.49 12.62
Table no.1.16
INTERPRETATION
In Zuari cement Ltd., Debtors turnover ratio was continuously increased which
is good for a company. It indicates that company operate its functions either on
cash basis or collection of account receivable is efficient. Here company is
facing low risk of bad debt.
We can see that the Debtor collection time period of Zuari Cement Ltd. continuously
decreased from 2002 to 2006. It indicates that company give less credit time to its
debtor that is beneficial for the company.
60
 WORKING CAPITAL TURNOVER:-
It is a measurement comparing the depletion of working capital to the

generation of sales over a given period. This provides some useful
information as to how effectively a company is using its working capital to
generate sales.
Sales
Working capital turnover =
Working capital
Working capital = Current Assets - Current Liabilities

Year 2002 2003 2004 2005 2006
Ratio -36.42 11.15 10.24 22.90 36.36
12304.3 12030.0 13231.6 16476.7 24280.2
Sales 4 7 6 9 3
Current Assets 3819.93 2674.59 3215.45 3673.57 5571.92
C. Liabilities 4157.82 1595.22 1923.25 2954.19 4904.18
Net working
capital -337.89 1079.37 1292.2 719.38 667.74
Table no.1.17
INTERPRETATION
In 2002 ZCL shows negative working capital that is not good for a company
And turnover ratio also negative. It could not convert working capital in to
sales due to which it made very little profit that year.
In 2005 and 2006 the working capital shows improvement that means it easily
converted its W.C. in to sales. We can see the ratio was also increase. It
indicates that company started proper use of its working capital for making
profit.
61
These ratios concerned with the effective use of working capital & indicate the
number of time capital was changed into sales. It can be seen in the year 2004
and 2006.
 TOTAL ASSET TURNOVER RATIO:-
This ratio expresses the relationship between total assets (fixed assets less
depreciation & current assets) and net sales. It is calculated using the following
formula:
Net Sales
Total Assets Turnover Ratio =
Total Assets
Year 2002 2003 2004 2005 2006

Ratio 1.62 1.49 1.45 1.91 2.69
12304.3 12030.0 13231.6 16476.7 24280.2
Sales 4 7 6 9 3
A.Total Assets 7586.23 8074.16 9104.32 8647.39 9036.5
Table no.1.18
INTERPRETATION
In 2003 and 2004 ZCL did not utilise its resources to increasing profit margin
and sales of company and presence of idle capacity, but in 2002 and 2005 it
slightly increase and show the efficiently utilization of fixed assets.
In 2006 the assets turnover ratio appreciable increased that indicates how
efficiently ZCL utilised its assets to making a good profit as compare over the
previous year.
62
 FIXED ASSET TURNOVER RATIO:-
This ratio expresses the relationship between fixed assets less depreciation and
net sales or cost of goods sold. The formula used for calculating this ratio is as
follows:
Net Sales or cost of goods sold

Fixed Assets Turnover Ratio=
Net Fixed Assets
Net Fixed Assets = Fixed assets – Depreciation
Year 2002 2003 2004 2005 2006

Ratio 2.42 2.67 3.00 4.16 6.52
24280.2
Net Sales 12304.34 12030.07 13231.66 16476.79 3
Fixed Assets 11339.16 11265.98 11461.11 11606.22 11771.2
Depreciation 6250.59 6763.18 7055.19 7642.64 8045.84
Net fixed Assets 5088.57 4502.8 4405.92 3963.58 3725.36
Table no.1.19
INTERPRETATION
This ratio indicates that ZCL is efficiently utilising its fixed assets that is good
signed for the company. The ratio is continuously increasing every year which
indicates that sales are also increasing according to fixed assets.
The ratio reached two and half time more in 2006 as compare the 2002. By
which we can see that, how management took excellent steps for utilization of
fixed assets.
 Cash Ratio
63
The cash ratio is an indicator of a company's liquidity that further
refines both the current ratio and the quick ratio by measuring the amount of
cash; cash equivalents or invested funds there are in current assets to cover
current liabilities. The formula used for this ratio is as follow.
Year 2002 2003 2004 2005 2006

Ratio 0.036 0.186 0.217 0.184 0.097
Cash 148.14 296.54 418.27 543.39 477.23
C.L. 4157.82 1595.22 1923.25 2954.19 4904.18
Table no.1.20
INTERPRETATION
Very few companies will have enough cash and cash equivalents to fully
cover current liabilities, which isn't necessarily a bad thing, so don't focus
on this ratio being above 1:1.
It is not realistic for a ZCL to purposefully maintain high levels of cash

assets to cover current liabilities. The reason being that it's often seen as
poor asset utilization for ZCL to hold large amounts of cash on its balance
sheet, as this money could be returned to shareholders or used elsewhere
to generate higher returns.
 PROFITABLITY RATIO:-
64
The main object of every business concern is to earn profits. A business must be able
to earn adequate profits in relation to the capital invested in it. The efficiency and the
success of a business can be measured with the help of profitability ratios. We can
understand more about these ratios by categorized it into the following two:-
I. Ratios calculated on bases of sales –
{Net Sales means (sales + Income from Service)} these are as follows:
 NET PROFIT RATIO:-
This ratio measured the relationship net profits and sales of a firm. Net profit
is the excess of revenue over expenses during a particular accounting period.
The net profit ratio is determined by dividing the net profit by sales and
expressed as percentage. The formula used is as follows:-
Net Profit after Interest & Tax

Net Profit Ratio =
Net Sales
Ratio (%) 0.18 -10.74 -6.01 -2.73 5.43

Net Income 22.54 -1292.15 -795.69 -449.93 1317.39
Sale 12304.34 12030.07 13231.66 16476.79 24280.23
Table no.1.21
INTERPRETATION
In ZUARI Cement limited’ net sales do not show appreciable rise &cost of
production is continuously increases in the year 2002, 2003 and 2004 due to
65
which there was slight profit margin in 2002 and considerable loss in 2003 and
04 but after that company shows some improvement in sales by which it had
recovered loss in 2005 and 2006 it made it converted in profit. It is not good
from shareholder’s point of view.
The ratio clearly indicate that ZCL’s selling and operating expenses is quite
high in the year 2002 to 2005 that’s why it made loss during the year. ZCL
must concentrate on these expenses.
 GROSS PROFIT RATIO:-
A company's cost of sales, or cost of goods sold, represents the expense related
to labor, raw materials and manufacturing overhead involved in its production
process. This expense is deducted from the company's net sales/revenue,
which results in a company's first level of profit, or gross profit. The gross
profit margin is used to analyze how efficiently a company is using its raw
materials, labor and manufacturing-related fixed assets to generate profits. A
higher margin percentage is a favorable profit indicator.
Gross Profit
Gross profit ratio =
Net sales
Year 2002 2003 2004 2005 2006

Ratio (%) 14.61 2.18 8.14 3.80 9.14
G.P. 1797.39 262.4 1076.94 626.73 2220.14
Sale 12304.34 12030.07 13231.66 16476.79 24280.23
Table no.1.22
INTERPRETATION
66
The gross profit ratio indicate that in 2002 Zuari cement efficiently used raw
material, labour and other manufacturing assets for generating profit. But in 2003, 04
and 2005 it was very less that means it was not able to proper uses of its resources.
In 2006 the margin of gross profit was 9.14% that is quit high compare than previous
three year. Company should consider of using raw material, labour and other
manufacturing assets.
II. Ratio calculated on basis of Capital – These are as follows:
67
 RETURN ON CAPITAL EMPLOYED:-
This ratio reflects the overall profitability of the business. It is calculated by

comparing the profit earned and the capital employed to earn it. This ratio is
usually in percentage and is also known as ‘Rate of Return’ or Return on
Capital Employed’ or ‘Yield on Capital’.
The term ‘Investment’ here refers to long-term funds deployed

in the enterprise. As defined earlier long-term funds are also known as capital
employed which means total of shareholder funds and long term loans. Since
the Capital employed includes shareholders funds and long-term loans, interest
paid on long-term loans will not be deducted from profits while calculating
this ratio. The ratio is computed as under.
Net Profit before Interest and Tax

Return on Capital employed =
Capital Employed
Where,
Capital Employed = Total Assets – Current Liabilities
Year 2002 2003 2004 2005 2006

Ratio (%) 17.56 -6.59 5.43 2.06 44.63
EBIT 834.06 -368.1 309.59 96.5 1960.57
Total Assets 8908.5 7177.39 7621.37 7637.15 9297.28
Current Liabilities 4157.82 1595.22 1923.25 2954.19 4904.18
Capital employed 4750.68 5582.17 5698.12 4682.96 4393.1
Table no.1.23
INTERPRETATION
In Zuari cement limited the return on capital employed was negative in the
year 2003 and very less return in 2002, 04 and 05. This indicates that there is
68
not effective & efficient utilization of capital. This shows that effective
utilization of long term fund is not takes place.
But in 2006 management of ZCL Shows effective used of debt and equity that
is good for the company because many investment analysts think that
factoring debt into a company's total capital provides a more comprehensive
evaluation of how well management using the debt and equity it has at its
disposal.
 RETURN ON EQUITY SHARE HOLDER’S FUND:-
This ratio expresses the percentage relationship between net profit after
interest and tax and proprietors funds or shareholders investment. This is also
known as “Return on proprietor’s funds”. It is used to ascertain the earning
power of shareholders investment. Proprietors or shareholders funds include
preference share capital as well as equity shareholders funds which in turn
comprises equity shares capital share premium, and reserves and surplus. The
shareholders equity also refers to the Net worth of a company. The net profits
69
are after deducting interest and tax but before deducting dividend on
preference shares. It is the final income that is available for distribution as
dividend to shareholders. The ratio is calculated by using the following
formula:-
Net Profit after Interest and Tax

Return on Equity share holder’Fund =
Shareholder’s Fund
Year 2002 2003 2004 2005 2006

Ratio (%) 0.94 -31.84 -19.60 -11.09 32.46
- 1317.3
Profit After tax 22.54 1292.15 -795.69 -449.93 9
2386.9 4058.6 4058.6 4058.6
Shareholder’s equity 2 4058.63 4 4 4
Table no.1.24
INTERPRETATION
In Zuari cement ltd. profitability on share capital & and long term fund is in negative
in the year 2003 to 2005due to loss after tax i.e. shareholders loss their amount from
principal. This decreases the value of company in market which may create finance
problem in future. Investors move away from doing investment in company. In 2006
it give 32% return on equity that may be good sign for investor point of view.
RETURN ON TOTAL ASSET:-
70
Profitability can also be measured by establishing relationship between net
profit and total assets. This ratio is computed by dividing the net profits after
tax by total funds invested or total assets. Total assets mean all net fixed
current assets and non-trading investments. Factious assets are excluded but
intangible assets are not excluded. The ratio is expressed as formula.
Net Profit after Interest and Tax +Interest

Return on Total Assets =
Total assets
Year 2002 2003 2004 2005 2006

Ratio (%) 9.23 -6.79 -1.70 1.26 20.46
Net income 22.54 -1292.15 -795.69 -449.93 1317.39
Interest 799.41 804.71 666.21 546.43 585.18
T.Assets 8908.50 7177.39 7621.37 7637.15 9297.28
Net income +Interest 821.95 -487.44 -129.48 96.5 1902.57
Table no.1.25
INTERPRETATION
In Zuari cement Ltd. return on total assets are very pathetic in the 2003 to
2005. Company invests money in various operation but do not able to get back
return from it. Here also company is continuously loosing. But in 2006
company quietly improved its position that break the standard form.
The thumb rule say that company ROA may not come less than 5%. That can
be seen in the year 2002 and 2006. When company got better return on its
assets.
 INVESTMENT ANALYSIS:-
 RESERVE-CAPITAL RATIO:-
71
This ratio explains the profit allocation policy of a company. It is calculated by
dividing reserves by equity shares capital thus.
Reserve
Reserve to Capital Ratio =
Equity Share Capital
Year 2002 2003 2004 2005 2006

Ratio 0.01 0.63 0.63 0.63 0.63
Reserves 15.00 1573.22 1573.22 1573.22 1573.22
Equity Share Capital 2371.92 2485.41 2485.42 2485.42 2485.42
Table no.1.26
INTERPRETATION
This data find out equity share is no more than different in three years. So company is
not dealing or trading in share. Company didn’t have good reserves in 2002. But from
2002 it increased its reserve that was more than 50% of share capital which proves
that company could face out from any financial problem. Now it maintained its
reserve more than 50% in every year till 2006. It seems that company is now
financially sound full.
 DEBT RATIO
72
The debt ratio compares a company's total debt to its total assets,
which is used to gain a general idea as to the amount of leverage being
used by a company. A low percentage means that the company is less
dependent on leverage, i.e., money borrowed from and/or owed to
others. The lower the percentage, the less leverage a company is
using and the stronger its equity position. In general, the higher the
ratio, the more risk that company is considered to have taken on.
Formula:
Year 2002 2003 2004 2005 2006

Ratio 84.48 74.72 84.84 89.80 79.83
T.LIABILITIES 7526.12 5362.78 6465.92 6857.95 7421.88
T.Assets 8908.50 7177.39 7621.37 7637.15 9297.28
Table no.1.27
INTERPRETATION
The easy-to-calculate debt ratio is helpful to investors looking for a quick take on a
company's leverage. The debt ratio gives users a quick measure of the amount of debt
that the company has on its balance sheets compared to its assets.
The use of leverage, as displayed by the debt ratio, can be a double-edged sword for
companies. If the company manages to generate returns above their cost of capital,
investors will benefit. However, with the added risk of the debt on its books, a
company can be easily hurt by this leverage if it is unable to generate returns above
the cost of capital. Basically, any gains or losses are magnified by the use of leverage
in the company's capital structure.
 Capitalization Ratio
73
The capitalization ratio measures the debt component of a company's capital
structure, or capitalization (i.e., the sum of long-term debt liabilities and
shareholders' equity) to support a company's operations and growth.
Long-term debt is divided by the sum of long-term debt and shareholders'

equity. This ratio is considered to be one of the more meaningful of the "debt"
ratios – it delivers the key insight into a company's use of leverage.
Formula:
Year 2002 2003 2004 2005 2006

Ratio 58.53 48.14 52.81 49.03 38.28
Long term debt 3368.30 3767.56 4542.67 3903.76 2517.70
Long term debt+Equity 5755.22 7826.19 8601.31 7962.40 6576.34
Table no.1.28
INTERPRETATION
The company capitalization ratio shows the ZCL’s healthy financial condition because
ZCL has more equity than its long term debts in the year 2002 to 2005 but it reduced
in 2006 so company should concentrate on this.
 Growth Ratio
These ratio measure the rate at which a firm should grow. Growth rate in sales
need additional investment support incremental sales both in terms of current
assets (such as inventory and debtor) and productive capacity/long-term assets
(such as plant and machinery). The firm’s growth rate is higher when external
finance is used. It is lower when it used internally generated funds (retained
earning) only finance to its assets.
74
There are two types of growth rates:
 Internal growth rate

 Sustainable growth rate
 Internal Growth Rate
The IGR is the maximum rate at which a firm can grow (in terms of sales or
assets) without external financing of any kind. To determine the IGR the following
assumption are made:
There is an increase in assets of the firm in proportion to the sales,
The net profit margin after taxes is in direct proportion to sales,
The firm has a target dividend payout ratio (retention ratio) which it wants to
maintain,
The firm wants to grow at a rate which is warranted by its retentions.
Formula
ROA*b
IGR =
1-(ROA*b)
Where (i) ROA is the return on assets

(ii)b is retention ratio(1-Dividend payout)
Year 2002 2003 2004 2005 2006

Ratio -100.11 -99.85 -99.41 -100.80 -100.05
ROA*B 922.66 -679.13 -169.89 126.36 2046.37
1-(ROA*B) -921.66 680.13 170.89 -125.36 -2045.37
Table no.1.29
75
INTERPRETATION
The following table shows the ZCL had negative internal growth rate, because firm
has 100% retained earning. It is not registered company in the stock market.
 Sustainable Growth Rate
The SGR is the maximum rate at which the firm can grow by using internal
sources (retained earnings) as well as additional external debt but without
increasing its financial leverage (debt – equity ratio). To determine SGR, the two
additional assumptions are made:
The firm has a target capital structure (D/E ratio) which it wants to maintain,
The firm does not intend to sell new equity shares as it is a source of finance.
Formula
ROE*b
SGR =
1-(ROE*b)
Where (i) ROE is the return on equity and
76
(ii)b is Retention ratio (Dividend payout ratio)
Year 2002 2003 2004 2005 2006

Ratio -101.07 -99.97 -99.95 -99.91 -100.03
ROE*B 94.43 -3183.71 -1960.48 -1108.57 3245.89
1-ROE*B -93.43 3184.71 1961.48 1109.57 -3244.89
Table no.1.30

INTERPRETATION
The following table shows the ZCL had negative Sustainable growth rate,
because firm has 100% retained earning. It is not registered company in the stock
market.
RECOMMENDATIONS
77
 ZCL must increase its liquidity position for paying its short term
obligation, because its margin of safety is very less from investor
point of view during the year 2005 and 2006.
 In 2005 and 2006 company was suffered from cash problem. So

ZCL should consider in this area also.
 The high leverage ratio would lead inflexibility in the operations of

the firm, as creditors would be able to borrow funds only under
restrictive conditions; a firm faces difficulty in raising funds in
future.
 The proprietary ratio is less than 1 or 50%. This low value of ratio
indicates the unsound financial position of company. It is not good
for long term prospect. Company has to take certain steps to equity
portion of this ratio.
 Company should consider of using raw material, labor and other

manufacturing assets for its gross margin profit.
 ZCL has more equity than its long term debts in the year 2002 to
2005 but it reduced in 2006 so company should concentrate on this.
 The company should be moving ahead with strong performance

and well conceived strategies for expansion, diversification and
corporate transformation.
78
 The company should be better utilization of human resources and
improvement in work culture and productivity. Employees were
motivated through competition, prizes and incentives declared by
the company from time to time
 Inventory is slow moving item. There is still a possibility of

reduction in its holding days for ZCL the large part of current
assets is in the form of inventory.
 ZCL should raise its market share for establishing new plant in
western region. There is also ample quantity of lime stone.
CONCLUSION
79
 In the recent years we will find a growing consumers demand
for cement due to the infrastructure development and housing.
Because of intensive demand for
cement more than 15 players came into the market with their market
ing strategies. The dealers are major sellers of the cement and
whole perception will really makes the difference. The dealers are
becoming very conscious about the quality, credit, price, strength
and durability of cement. They need better cement at competitive
price.
 In zuari cement, advertisements have to play a vital role to attract

more no. of consumers to purchase their products and also play an
important role to improve their sales.
 The zuari cement is slowly setting the insights of builders because

of its quality and affordability. There was a good
satisfaction among the dealers of zuari despite its market reach is
limited.
 On the whole, the quality aspects of zuari cement are superior in the
views of dealers and it is positional as “quality-affordable cement”
in the market.
80
Bibliography
BOOKS
KHAN & JAIN and I. M. PANDEY

(Financial management)
WEBSITES
www.zuaricement.com
www.italcementgroups.com
www.investopedia.com
www.indiainfoline.com
www.wikipedia.com
www.indiabiznews.com
www.bnet.com …………etc
81

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UNIVERSITY OF MUMBAI

Submitted in partial fulfilment of the requirement for the award of degree

MS. PALLAVI RAJESH SHETTY

Under the guidance of

REENA MEHTA COLLEGE OF COMMERCE AND

REENA MEHTA COLLEGE OF COMMERCE AND MANAGEMENT

STUDIES has completed her project work of “FINANCIAL STATEMENT

COURSE COORDINATOR PRINCIPAL

(MRS. SUPRIYA SINGH) (DR.SATINDER KAUR

(MR. ADIL ILYAS SHAIKH)

I, MS. PALLAVI RAJESH SHETTY, student of REENA MEHTA COLLEGE OF

PALLAVI RAJESH SHETTY

NAME OF THE STUDENT: PALLAVI RAJESH SHETTY

REENA MEHTA COLLEGE OF COMMERCE AND MANAGEMENT

I would like to thank my principal, DR. SATINDER KAUR GUJRAL for

CHAPTER I: Introduction 8-20

CHAPTER II: Profile of the organization 21-31

CHAPTER III: Research Design and Methodology 32-34

CHAPTER IV: Data Presentation, Analysis and 35-76

CHAPTER V: Recommendations 77-78

Financial analysis is the process of identifying the financial strengths and

In brief, financial analysis is the process of selection, relation and evaluation.

The financial statement provides a summarised view of financial position and

The firm’s financial statement includes.

 Statement of cash flow

 Statement of retain earning

In theory the balance sheet of a private limited company or a public limited

 Machinery and equipment

 Current assets typically include:

 Money that has been borrowed and must be repaid at some

 financing provided by a creditor

 Credit extended by suppliers to a firm when it purchases

 Short term liabilities incurred in the firm’s operations but not

 Borrowings from a bank or lending institution due and payable

 Loans from banks or other institutions for longer than 12 months

 Includes the shareholder’s investment

Income Statement provides information regarding revenues and expenses of the

Income Statement Terminology

 Money derived from selling the company’s product or service

 Cost of Goods Sold (COGS)

 The cost of producing or acquiring the goods or services to be sold

 Expenses related to marketing and distributing the product or service

 The interest paid to creditors and the dividends paid to preferred

 Amount of taxes owed, based upon taxable income

(3) Cash is used to create a profit - cash flow from operations.

• LEGAL LIABILITY AMOUNT (CREDIT & PERF.)

• GOING CONCERN DECISIONS (CREDIT & PERF.)

• UNREASONABLE RETURNS (PERFORMANCE)

Tools of Financial Analysis:

 Comparative Financial Statements

 Comparative Financial Statements :

Comparative Financial Statements refer to statements of financial

Comparative statements mainly show the following information for analytical

o Increases and decreases in various items in money values.

o Increases or decreases in various items of percentages.

The main limitation of comparative financial statements is that they failed

“Common size” statements are also called component percentages or

This method is horizontal type analysis of financial statements. The trend

Another significant technique of financial analysis is fund flow statement

The significant funds flow statements, referred to as the statement of

Ratio analysis is a powerful tool and widely used to financial analysis,

The term ratio refers to the numerical or quantitative relationship between

Nature and significance of ratio analysis: